As the reopening of Ireland’s economy steps-up a gear and continues to garner attention in the media, the COVID Credit Guarantee Scheme (CCGS) (relaunched and rebranded from the SME Credit Guarantee Scheme) continues to provide assistance for SMEs who require liquidity support.
What is the CCGS?
The CCGS is a State backed partial guarantee (up to 80%) of a lender’s exposure to a borrower under term loans, demand loans and performance bonds of up to seven years term in amounts that range from €10,000 to €1,000,000.
A borrower may be finding it difficult to access new or additional facilities from a lender for support as business ramps back up, whether by reason of insufficient collateral or a lender’s view on the credit risk now presented by that business arising from COVID-19. The borrower must have suffered an adverse impact of a minimum of 15% of actual or projected turnover and must pay a guarantee premium of the loan in addition to interest costs.
The intention is that by providing the CCGS the State will enable businesses to continue activities or return to activities more quickly than would otherwise be the case.
What is new in the CCGS?
SME borrowers who may have previously looked at the Credit Guarantee Scheme with their lenders may wish to revisit this now as the State is currently making available the scheme for up to €2 billion of loans (up from the previous €150 million level).
A wider definition of SME (including businesses employing not more than 499 people up from 299 people) applies with an understood intention that the scheme will cover all SMEs and primary producers in agriculture, fisheries and aquaculture although there is some uncertainty as to how this will be implemented in the secondary legislation bringing the scheme into effect.
Lenders’ are no longer subject to a portfolio cap on loans being supported by the CCGS and capital and interest moratoria can be accommodated within the scheme and so borrowers’ may find it more accessible than previously. Borrowers should however note that a loan supported by the CCGS will be limited in size by reference to business turnover or wage costs measured on 2019 levels.
When will it be available?
The Credit Guarantee (Amendment) Bill 2020 passed through the Houses of the Oireachtas on 21 to 23 July. Subsequent legal instruments and agreements are to be completed to bring the Scheme into effect, and such further details are to be announced.
The Strategic Banking Corporation of Ireland (SBCI) has put out a call for lenders to deliver expressions of interest in delivering funding backed by the CCGS (in addition to the existing lenders under the CGS (AIB, Bank of Ireland and Ulster Bank) who will form part of the scheme) by 2 September 2020 - click here.
At this stage the Department of Business, Enterprise, and Innovation has not yet published a timeline for when this is to be passed, but given the intention to support the reopening of the economy and the fact that the scheme is initially timebound to 31 December 2020 with no loans included in the scheme being able to extend beyond 31 December 2026, it would be logical to expect this to be put in place very soon.
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About the Authors
Michael is Head of the Banking and Financial Services team at Hayes solicitors. He advises on a broad range of domestic and cross border finance transactions. His primary focus is acting for lending institutions and borrowers on leveraged/acquisition, commercial property, construction/development and SME finance transactions.
Tim is an Associate in the Banking and Financial Services team at Hayes solicitors. Tim has extensive experience advising both borrowers and lenders across a wide range of financing transactions including corporate debt facilities, complex cross-border financings, export-credit backed lending and leveraged/acquisition finance.